811 F.3d 950
7th Cir.2016Background
- Titan International, an Illinois manufacturer, was audited by the IRS for tax year 2009; Titan provided 2009 general ledger, flight logs, and travel records and accepted an adjustment to its 2009 net operating loss.
- In 2014 the IRS opened an audit of Titan’s 2010 return and again summoned the company’s 2009 records to verify a 2010 net-operating-loss carryforward.
- Titan refused the 2014 summons, invoking 26 U.S.C. § 7605(b), which it read to bar any reinspection of records for a year already inspected unless the Treasury Secretary issues written notice that an additional inspection is necessary.
- The United States petitioned the district court to enforce the summons; the district court rejected Titan’s statutory interpretation and ordered compliance.
- On appeal, the Seventh Circuit reviewed de novo whether § 7605(b) prohibits inspecting records already examined in a prior-year audit when those records are sought to audit a different tax year.
- The Seventh Circuit affirmed: § 7605(b) limits inspections per audited taxable year, but does not bar reinspection of previously examined records when those records are necessary to audit a different tax year.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 26 U.S.C. § 7605(b) prohibits the IRS from re-inspecting records of tax year N that were already inspected in an audit of tax year N when the IRS seeks those records to audit tax year N+1 | § 7605(b) bars any additional inspection of records “for each taxable year” unless the Secretary provides written notice of necessity; 2009 records cannot be re-inspected without notice | § 7605(b) limits inspections to one per audited taxable year, but does not bar use of previously inspected records when necessary to audit a different taxable year | The statute does not bar the IRS from summoning previously-inspected 2009 records to audit the taxpayer’s 2010 return; affirmed |
Key Cases Cited
- Reineman v. United States, 301 F.2d 267 (7th Cir. 1962) (held second inspection violated § 7605(b) where IRS reopened and reexamined records to adjust the same earlier tax year)
- Digby v. Commissioner, 103 T.C. 441 (1994) (concluded second inspection was permissible when records previously inspected for year N were necessary to determine tax liability for year N+1)